Will a Canadian court recognize a US plan with a cramdown mechanism?
The applicants sought Canadian recognition of certain orders granted by the US Bankruptcy Court, specifically a confirmation order approving a plan of arrangement of the Debtor company and a settlement order that formed part of the plan. The Debtor was a leading provider of hydraulic fracturing and cementing services to upstream oil and gas companies engaged in the exploration and production of North American oil and natural gas resources.
The plan provided for the full and final resolution of certain debt obligations, through the creation of a line-down trust and the appointment of a line-down trustee to pay and reconcile claims and administer the plan in an efficient manner. The plan avoided the delay and costs associated with a Chapter 7 liquidation under the US Bankruptcy Code.
The classes of creditors whose rights were unimpaired by the plan were deemed to be accepting classes. The classes of creditors whose rights were impaired under the plan, such that they’d be entitled to no recovery under it, were deemed to reject the plan. As a result of a subsequent settlement agreement (which was the subject of the settlement order sought), all of the voting classes of creditors ultimately supported the plan.
The US Bankruptcy Code permits a proponent of a plan to request the Court to confirm the plan notwithstanding the failure of one or more impaired classes to accept the plan by evoking the “cram down” power. In this case, the US Court confirmed the plan despite the rejecting classes, because the voting classes voted to accept the plan and the plan did not discriminate unfairly.
The assets of the Debtor vested in the line-down trust, line-down trustee or liquidation trustee, as applicable, for the purpose of liquidating the estate free and clear of all charges. This was intended to occur without further supervision of the US Bankruptcy Court.
The Canadian Court noted that it had jurisdiction under s. 49 of the CCAA to make any order that was necessary for the protection of the property of the Debtor or in the interest of creditors. Under sections 52(1) and 61(2) of the CCAA, once an order recognizing a foreign proceeding is made, the Court is required to cooperate to the maximum extent possible with the foreign court so long as the request for relief is not inconsistent with the CCAA nor raises concerns regarding public policy.
The factors that the Court considers when deciding whether to recognize a foreign order include whether the order promotes plans that allow an enterprise to reorganize globally, especially where there is an established interdependence on a transnational basis.
The Court found that the plan complied with all applicable provisions of the US Bankruptcy Code; it was proposed in good faith and was the product of good faith arm’s length negotiations, and it served the public interest and assured fair treatment of claims. The plan provided claimants with as much or more value than if the Debtor company had liquidated—an outcome that was in the best interests of creditors. Both the plan and the settlement order constituted a good faith and feasible compromise and settlement of all claims. They were fair and equitable with respect to the interests of competing creditors. Accordingly, the Court granted the orders sought by the applicants.
Counsel: Kelsey Meyer and Keely Cameron of Bennett Jones for BJ Services Holdings Canada, ULC; Kourtney Rylands of McMillan for JP Morgan Chase Bank, the agent for the pre-petition ABL Lenders; Carole Hunter of DLA Piper for Great American 35 Capital Partners LLC, the agent for the 36 equipment term loan lenders.
Judge: Madam Justice Romaine